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Intel says customers stockpiling chips on U.S.-China tension, hikes forecast

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07/25/2019 | 07:14pm EDT
FILE PHOTO: Computer chip maker Intel's logo is shown on a gaming computer display during the opening day of E3, the annual video games expo revealing the latest in gaming software and hardware in Los Angeles

(Reuters) - Intel Corp forecast current-quarter profit and revenue above estimates and raised its full-year revenue forecast on Thursday, allaying concerns about a global semiconductor sales slowdown and curbs on U.S. sales to China's Huawei Technologies Co Ltd .

Intel shares rose 4.9% to $54.70 (£44) in extended trading.

The chip industry is in a slowdown, with research firm Gartner forecasting a 9.6% drop in global semiconductor revenue in 2019, to $429 billion. U.S.-China trade tensions, including tariffs on some products and the restrictions on sales to Huawei, are pressuring chipmakers.

But those factors did not trouble Intel, which was the second chipmaker this week to beat analysts' earnings estimates. On Tuesday, Texas Instruments Inc said U.S.-China trade tensions were not hampering its ability to conduct business in China.

Intel's chief financial officer, George Davis, told Reuters the company had resumed some product sales to Huawei that comply with U.S. regulations. Tariff threats between the United States and China actually helped second-quarter sales by about $400 million, Intel executives said.

"Customers concerned about supply risk in the second half of the year related to those items pulled in some demand into the second quarter," Davis said in an interview. "It isn't a net add to the full year (forecast), but it certainly de-risks some of the full year."

Intel reported second-quarter revenue of $16.5 billion and adjusted earnings of $1.06 per share. Analysts on average had expected revenue of $15.7 billion and adjusted earnings of 89 cents per share, according to IBES data from Refinitiv.

But it was the company's forecast that drove up shares, with third-quarter revenue and profit forecast to be $18 billion and $1.24 per share, above analysts' estimate of $17.72 billion and $1.16 per share.

The company estimated 2019 revenue of $69.5 billion, instead of the $69 billion it told investors to expect in April. Chief Executive Bob Swan told investors on a conference call that Intel has two factories now producing 10-nanometer chips - the next generation of manufacturing technology which Intel has struggled to bring online - and said plans to produce 7-nanometer chips by 2021 remain on track.

"We're most impressed by progress on 10-nanometer ramp," Abhinav Davuluri, an equity analyst with Morningstar, said.

Intel also said it planned to sell the majority of its modem business to Apple Inc for $1 billion. About 2,200 Intel employees will join Apple, which will acquire a trove of patents under the deal.

Davis told Reuters the payment was all cash. Intel will retain the rights to make non-smartphone modems for self-driving cars and PCs under the deal.

The company estimated a $500 million after-tax gain from the sale of the modem business.

After years of acquisitions outside its core area of processing chips under previous leaders, Swan has set a goal of becoming more disciplined about spending, slowing investments in areas like memory chips and shedding struggling businesses.

Dan Ives of Wedbush Securities said the sales were a step in the right direction.

"We believe further divestitures of non-core businesses would certainly make (Intel) look more attractive, while allowing management to more closely focus on improving core operations increasing the likelihood of future execution, but we are not yet convinced management will move in this direction," he said in a note.

Revenue in Intel's client computing business, which caters to PC makers and remains the biggest contributor to sales, rose to $8.84 billion, beating FactSet estimates of $8.13 billion.

Revenue from Intel's higher-margin data centre business rose to $4.98 billion, above estimates of $4.89 billion according to FactSet.

Intel, the biggest provider of processor chips for PCs for decades, has come to count on data centre chips for most of its revenue growth.

Net income fell to $4.2 billion, or 92 cents per share, in the second quarter, from $5 billion, or $1.05 per share, a year earlier. Net revenue fell 3% to $16.5 billion.

(Reporting by Munsif Vengattil in Bengaluru and Stephen Nellis in San Francisco; Editing by Richard Chang and Leslie Adler)

By Munsif Vengattil and Stephen Nellis

Stocks mentioned in the article
ChangeLast1st jan.
APPLE -1.46% 217.73 Delayed Quote.38.03%
INTEL CORPORATION -1.65% 50.72 Delayed Quote.8.08%
TEXAS INSTRUMENTS -1.68% 126.67 Delayed Quote.34.04%
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Financials (USD)
Sales 2019 69 419 M
EBIT 2019 22 077 M
Net income 2019 18 597 M
Debt 2019 15 134 M
Yield 2019 2,46%
P/E ratio 2019 12,4x
P/E ratio 2020 12,0x
EV / Sales2019 3,45x
EV / Sales2020 3,38x
Capitalization 225 B
Duration : Period :
Intel Corporation Technical Analysis Chart | MarketScreener
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Technical analysis trends INTEL CORPORATION
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 42
Average target price 54,31  $
Last Close Price 50,72  $
Spread / Highest target 47,9%
Spread / Average Target 7,08%
Spread / Lowest Target -25,1%
EPS Revisions
Robert Holmes Swan Chief Executive Officer, Director & Executive VP
Andy D. Bryant Controller
Ann-Marie Holmes Vice President-Operations & Manufacturing
Todd Underwood Chief Financial Officer & Vice President
Ann B. Kelleher Senior VP-Technology & Manufacturing Group
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